When I was selling shrink-wrapped product to Best Buy, we showed the buyer testimonials from our alpha and beta users to convince him that the product would live up to our promise and walked him through a demo. He was not convinced and we were stuck at maybe. Then we gave him the full product on a development X-box. He took it home to his wife and teenage daughters so they could preview the game. They loved it in the console environment and we closed the sale.
This is an example of previum.
In a previum model, the customer gets the full experience for free in a limited way. In the freemium model they get a limited experience for free in an unlimited way. Both models leverage the power of free for customer acquisition. The critical difference is the previum model forces the user to cross back over the penny gap and become a customer or accept a tangibly limited experience. The freemium model is less effective because it asks the consumer to adopt a limited version of a product and then encourages them to cross back over the penny gap with the promise of a better experience.
Sony has filed for a patent in the video game space that includes a great graphic to illustrate this point. Ask yourself which is more convincing — the Freemium Model:
Freemium: Pay me and I promise to give you a bigger sword. Did I mention, it is WAY bigger!?!
or the Previum Model where you get to experience the big sword and see how much better it can be:
Previum: What's wrong, want the big powerful sword back? You can have it for the low price of...
In the previum model, the consumer gets to see everything you have to offer and to experience it in full, for free. After some period of time or number of uses, you ask them to pay for the services they are enjoying.
The hardest thing you can do in any business is close a sale. You basically have two dials you can turn to get someone to pay:
- increasing the perceived value of the product (marketing)
- decreasing the cost or of the product (pricing)
In the digital world we have taken this to the extreme with freemium and decreased the consumer cost of the initial offering to zero. The penny gap helps you acquire users, but when potential consumers experience your limited offering at no cost the power of free may work against you.
Consumers are educated by the tangible thing they experience as they engage with your service and it gets harder and harder to convince a consumer to cross back over the penny gap with the promise of value added services. Eventually, the free product defines your business and 90% of your consumers decide the free version is good enough without ever experiencing the full product.
In the non-digital world companies have used previum models to acquire customers for a long time. Auto-dealers will let you take a car home for the weekend and gas stations offer a free car wash with the purchase of a full tank of gas. Restaurants give away food at happy hour and at physical retail you can try an item on before purchase. In each example, the perceived value of the service you are buying is higher because you get the full experience before you buy.
I think more digital products/services should be sold with the previum model and hope to discuss it further in the comments.
#1 by Benjamin Yoskovitz on May 18, 2010 - 8:18 pm
Previum makes sense because it forces the purchase decision at some tangible point in the future. You know you're going to get to the buying decision and not be stuck in freemium limbo.
But I wonder how many people don't even bother trying a service/product because they know that day is coming? If that number is too high, it won't matter if you convert a higher percentage to paying with a previum model, that number could still be lower than freemium. And then you've also got less evangelists promoting your service/product long-term.
Not arguing for freemium over previum, just curious about those issues in the discussion to follow.
#2 by phineasb on May 18, 2010 - 9:20 pm
Many freemium models hope to convert at 10% leaving a lot of headroom for previum and while I agree on the evangelist front, I am not sure I see consumers not using something for free because they will have to pay to continue to use the full version. I am not suggesting that we force a pay wall into the service, but rather scaling the user back to a free version to use forever (that they would get with freemium from the start) instead of asking them to scale up to a paid product.
#3 by jpmarcum on May 18, 2010 - 9:22 pm
HBO and the other premium channels actually did quite a bit of this in partnership with MSOs back when they were rolling out (may still but I haven't seen it). They'd promote free weekends aggressively and (if you were the child of cheap parents) it was like winning the lottery until they pulled the plug.
#4 by Sachin Agarwal on May 18, 2010 - 9:22 pm
I'm not sure how this is all that different from a free trial that degrades into a gimpy product after the free trial expires. For example, dating sites do this all the time when they have limited “free communication” for three days or a week. One of the companies that I'm working with also is doing this, and it can be attractive for premium products. The downside is that if users know the bait-and-switch is coming, you may lose prospects from even trialling the product in the first place.
#5 by phineasb on May 18, 2010 - 9:23 pm
I remember this and it is a great example.
#6 by daveschappell on May 18, 2010 - 9:23 pm
I like this — we've been re-thinking our decision to have a $3 first-listing model on TeachStreet. Probably better to give a new user their first listing for free, and then require payment after they've gotten leads, and have had a chance to trial the product. We had already been thinking about it, but this post helped me — thanks.
#7 by phineasb on May 18, 2010 - 9:27 pm
But in the dating example, you have communication and then you are cut off totally unless you pay or are you pushed back to the free “limited communication” offer if you don't pay for the premium service? If there is limited communication for free and the premium version must be paid, I think showing you what you get is not a bait and switch if communicated properly.
#8 by phineasb on May 18, 2010 - 9:40 pm
Glad it helped. Nothing educates a consumer about the value of a product like a great experience with the actual product.
Phineas Barnes
Principal, First Round Capital
http://www.frc.vc/phin
http://www.sneakerheadVC.com
http://www.twitter.com/phineasb
#9 by Mrinal Desai on May 18, 2010 - 10:22 pm
This makes a lot of sense .. furthermore, if you have read “Predictably Irrational” by Dan Ariely, he talks about the quirks of ownership and one of them is we are very emotional about 'losing' anything and dont want to ..
#10 by phineasb on May 18, 2010 - 11:09 pm
I have read it and agree. His research is certainly a motivation for the previum model
Phineas Barnes
Principal, First Round Capital
http://www.frc.vc/phin
http://www.sneakerheadVC.com
http://www.twitter.com/phineasb
#11 by jarid on May 18, 2010 - 11:57 pm
Predictably Irrational was the first thing that came to mind for me too. It's all about anchoring. But, as for the name, isn't this just the “free trial” business model?
#12 by phineasb on May 19, 2010 - 12:23 am
Good point and I think you are right that free trial is another model with similar characteristics.
For me, the difference between free trial and previum is the free trial is binary: you try, you buy – or not. Previum allows the consumer to try, but then offers three choices: you buy, you downgrade to a free service offering or product experience or you churn out and abandon the product.
It is the free option that makes it a powerful alternative to freemium as opposed to free trial.
Phineas Barnes
Principal, First Round Capital
http://www.frc.vc/phin
http://www.sneakerheadVC.com
http://www.twitter.com/phineasb
#13 by Benjamin Yoskovitz on May 19, 2010 - 1:13 pm
The difference wasn't entirely clear (although it is now in the comment discussions) between Free Trial and Previum.
So someone can sign-up for the full version — for a limited time, after which they can downgrade to a lesser version for free or pay to maintain what they already have.
From a marketing perspective, would you promote the free downgraded version right off the bat so consumers know they can still get a free version, or promote it more as a Free Trial with the “surprise” at the end that if they want to downgrade they can? Wondering about the confusion of messaging here…”Free full version for 20 days, then after you buy or go down to a lower version for free.” Granted, it's nice to be able to say FREE two times…
#14 by phineasb on May 19, 2010 - 1:30 pm
I think I would promote the full product for free — maybe message a promotional period — and then make it clear that the consumer's decision is a limited product for free or a subscription or purchase to continue to use the full version.
#15 by shanesnow on May 19, 2010 - 3:53 pm
This has worked on me for software. I just got the ftp client Fetch, which gave me free access to everything, but now that the trial has expired it counts down like 2 minutes before opening. Because I liked the software so much, I was inclined to buy it even though technically I could still use it for free (just more of a pain). Had they only allowed me to say, upload files up to 50k, or some other limiting factor, I would never have bought the full version.
#16 by phineasb on May 19, 2010 - 3:55 pm
Great example Shane. Thanks
#17 by Siminoff on May 19, 2010 - 4:18 pm
Great post. I like the idea of having the Freemium model be the back up after letting the user experience the premium. Like trial but better.
#18 by Kiril on May 20, 2010 - 2:15 pm
Great word, “previum.” Nicely wraps a single term around a useful part of a freemium model.
#19 by petekazanjy on June 7, 2010 - 3:24 pm
We did this like CRAZY on the VMware Fusion team. We were obsessed with the value of an installed copy of Fusion + a running VM. A 30 day trial is great, but you have to get the user using it. We would package a full-blowing linux VM on a DVD with the software, and in VMware Fusion 3, included a way to magically convert a trial Windows XP / Vista / 7 VM from MSFT into a VMware Fusion-compatible one…because the big blocker on experiencing the value of Windows virtualization on a Mac was having a copy of Windows.
So yes. Getting the user sold on the value, such that they can say “Yup, this makes sense, and I'll pay $80 to continue getting this value” is killer.
#20 by phineasb on June 7, 2010 - 4:57 pm
Thanks Pete and great example.